Yes, you can get a home FFL.
You must first obtain al the necessary licenses, variances and approvals from the State, County and City. bATF won't even talk to you until you do. Also register as a business in the state you are in, obtain a EIN from the tax guys and depending on state, you may need an "authority to collect sales tax" certificate of some kind.
You need to send a pro-forma letter to the chief law enforcement officer where you plan to operate the business.
Then you complete all the BATF / FFL paperwork, send in 2 fingerprint cards and a pile of other stuff they ask for along with some money. Then you wait.
Assuming you didn't forget to cross a T or dot an I, and you're not a felon or have some other disqualifying factor, you should get a call from the local field office within 60 days to setup an onsite visit at your place of business. After the 2 hours, they leave and you either get a rejection or your FFL, pick one.
You need to demonstrate that you intend to actually run a potentially profitable business and You're not just ordering guns for yourself and your friends to get them wholesale.
They don't care if you a a gunsmith unless you "manufacture" (and it's a convoluted definition on the books) or are dealing in class3 /nfa stuff like suppressors. Once you have your FFL you can get your class 3 sot pretty much just by filling out the form and sending them more money. They have the right to audit you whenever they please and your "bound book", sales/transfer paperwork all needs to match up with your orders and inventory. Don't ever play games like those idiots on that tv show who can't even assemble an AR. They had their FFL's pulled for playing funny with the paperwork.
You can do transfers but you'll need to do all the same paperwork as you would for a walk in sale including running the nics background check on the buyer. you will not get rich doing transfers unless you transfer a truckload a week.
Keep in mind that Eric Holder is on record as being anti-gun and he runs the BATF. It's been tougher on people lately especially one man operations and small businesses.
Hope that helps.

First, you do not need an EIN (Employer ID Number) from the IRS if you're a sole proprietorship. You only need the EIN if you have employees. If the business is just you, you run it under your Social Security number.

I know of no small FFLs like myself that have issues because of the admin in Washington, more so than the larger ones, and I'm pretty well networked. Other than during the process of approval for the FFL, I have had little direct contact with anyone from BATFE other than the local field office and they have always treated me with respect and courtesy. I was contacted twice since I've been a dealer regarding traces of weapons I either bought or sold (one was for possible issues with a distributor I bought from, one because something I sold was used in a crime and they were tracing the pedigree) and I had no issues with the way they conducted themselves or what they requested. I was treated with respect and provided the info and never heard from them again on each issue. Maybe on the bigger scheme of things, the big dogs are a serious problem in both DOJ and BATFE, but as long as we tow the line on the small end (and that's not difficult to do), they pretty much are leaving us alone.

Irrespective, I would most certainly get an attorneys advice about whether another entity, either a corp or LLC would be appropriate (which will necessitate the EIN). A sole proprietor setup tied to your SSN leave you and everything you own in this world completely unprotected from liability. You can lose everything without a legal layer of protection between you and your business.

Don't now about one man shops in PA owned by retired LEO's but down south, these days, it's getting tougher on both the kitchen table guys and the mid-sized shops especially if you do builds from scratch and NFA stuff.

Of course, if you're manufacturing, it's a bit tougher. I agree with you BT. The NFA stuff, definately. They have tightened the reins on this. Part of the reason why I didn't bother going type III on the FFL as several have asked me why I didn't.

There are ways to protect yourself other than incorporating. You are also right that you risk personal assets without some protection. Incorporating isn't right or best for everyone. Look into this aspect of your business carefully as I and others did. Don't just jump into it.